U.S. Data Releases and Events

Next week's releases on producer and consumer prices, and retail sales, will reflect in large part the speculative fervor that drove crude oil and commodity prices up in June. Surging gasoline prices will drive June headline consumer and producer inflation higher, but underlying core rates of inflation will remain dormant for yet another month. Following the same theme, June retail sales will jump 0.5%, but virtually all of this gain will be due to surging gasoline prices, as chain store and auto sales declined.

Industrial production is expected to decline yet again, by 0.6% in June, with the bankruptcy-hamstrung domestic auto sector being a major drag, along with expected declines in machinery and electronics output.

The one bright light in the real economy next week is an expected increase in June building permits, driven mainly by gains in single-family permits. The housing market is finally bottoming out, which will set the stage for an expected rebound in residential investment in the fourth quarter of 2009.

KEY U.S. DATA RELEASES THIS WEEK

Tuesday, July 14 – Producer Price Index (Jun.)

Total

• IHS Global Insight: +1.1%
• Consensus: +0.9%
• Last Actual: +0.2% (May)

Core

• IHS Global Insight: 0.0%
• Consensus: +0.1%
• Last Actual: -0.1% (May)

What to Look For

• The overall PPI expected to rise 1.1%.
• But the core PPI will be about flat.

Implications

The PPI's survey period comes early in the month, so the June report should capture nearly all of oil's recent runup, but none of the subsequent decline. Consequently, the headline PPI is expected to rise 1.1%, as a roughly 20% surge in gasoline prices lifts the energy category more than 5%. Food is also likely to be up. Excluding food and energy, core prices should be unchanged. Although commodity costs have risen, finished goods producers cannot push through price increases with demand so weak.

Tuesday, July 14 – Retail Sales (Jun.)

Total

• IHS Global Insight: +0.5%
• Consensus: +0.4%
• Last Actual: +0.5% (May)

Less Autos

• IHS Global Insight: +0.8%
• Consensus: +0.5%
• Last Actual: +0.5% (May)

What to Look For

• Overall retail sales to be up by 0.5%, but that will be driven entirely by a surge in gasoline prices.
• Sales excluding autos to rise by 0.8%, also due to the surge in gasoline prices.

Implications

Retail sales increased an estimated 0.5% from May to June (or 0.8% excluding auto dealers), but that does not tell the real story. A jump in gasoline prices dominated last month's sales advance, as other sales declined. Rain and cool weather in the Northeast and Midwest discouraged tourism and shopping during June, hurting sales of seasonal items. While the fiscal stimulus program is supporting disposable income, consumers are reluctant to spend in an environment of heavy job losses, high debt burdens, and depleted wealth.

Wednesday, July 15 – Consumer Price Index (Jun.)

Total

• IHS Global Insight: +0.6%
• Consensus: +0.6%
• Last Actual: +0.1% (May)

Core

• IHS Global Insight: +0.1%
• Consensus: +0.1%
• Last Actual: +0.1% (May)

What to Look For

• Headline CPI to rise 0.6%, driven by jump in gasoline prices.
• Core CPI to edge up by 0.1%.

Implications

The retreat in retail gasoline prices in the final week of June was not enough to wipe away the surge in the first half of the month. We expect a 16.8% increase in gasoline prices to drive the headline CPI up 0.6% in June. Excluding food and energy, core prices are expected to rise 0.1%. Rising unemployment is hurting consumers' spending plans and holding core prices down.

Wednesday, July 15 – Industrial Production (Jun.)

• IHS Global Insight: -0.6%
• Consensus: -0.6%
• Last Actual: -1.1% (May)

What to Look For

• Production expected to decline 0.6%.

Implications

Industrial production should slip 0.6% in June, with motor vehicle output a noticeable drag. General manufacturing conditions remained weak last month, with a 1.2% drop in manufacturing hours worked; primary metals, machinery, and electronics were hit particularly hard, as were vehicles. Mild weather kept electricity demand weak, with the weather warm in the southern half of the country, but cool in the northern half.

Friday, July 17 – Housing Starts and Building Permits (Jun.)

Starts

• IHS Global Insight: 0.531 Mil.
• Consensus: 0.530 Mil.
• Last Actual: 0.532 Mil. (May)

Permits

• IHS Global Insight: 0.533 Mil.
• Consensus: 0.525 Mil.
• Last Actual: 0.518 Mil. (May)

What to Look For

• Housing starts are expected to be about flat.
• Building permits should rise, driven by a gain in single-family permits.

Implications

The construction market for single-family homes is on the mend. Single-family housing permits—arguably the most informative statistic about the current state of the housing market—rose 7.9% in May, and are up 19% from January's all-time low (data start in 1960). The construction market for multi-family homes, however, has collapsed. Multi-family permits fell 8.3% in May, the 11th consecutive monthly decline, to a record low of 110,000 units (annual rate). We project that these trends continued in June. We expect that a drop in multi-unit starts will offset an increase in single-family starts, leaving total starts little changed. Single-family permits, however, should increase more than multi-family permits drop (multi-family permits are scraping the bottom and cannot fall much further from current levels).